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If you do a lot of banking, you've probably come across the terms "automated clearing house" and "wire transfer" when trying to send money from one place to another. You may wonder what the terms mean and which is better to use when you need to send money.
Automated clearing house (ACH) and wire transfers are used to transfer money between banks, and sometimes between a consumer and a business. How money is transferred and the processing timelines differ between the two. Here's what to know about ACH transfers, wire transfers and when it's best to use one or the other.
What Is an ACH Transfer?
An ACH transfer refers to money being transferred from one bank to another by a third party. It is often used to process direct payments or direct deposits.
ACH transfers are based on the Automated Clearing House network, which includes about 10,000 financial institutions in the U.S. The ACH network can be used to process transactions such as direct debits, direct deposits, direct payments, electronic checks (eChecks) and electronic funds transfers (EFTs).
The rules that banks follow when they participate in an ACH transfer were developed by a payments association called Nacha, which stands for National Automated Clearinghouse Association.
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There are several scenarios in which consumers or business owners might want to use an ACH transfer for direct payments (ACH debit transactions) or direct deposits (ACH credit transactions):
- Payroll: If you're a business owner paying your employees
- Paying vendors: If you're a business owner paying vendors
- Bill paying: If you're paying companies you owe money to, directly from your bank's website
- Transferring money to friends or family: If you want to send money to a family member or friend
- Transferring money between your accounts: If you have accounts at more than one bank and want to transfer money from one bank to another
Often, ACH transfers take one to three days if there are sufficient funds in the account money is being paid from. Transactions can take longer, though, under certain circumstances, such as if the system detects a potentially fraudulent transaction. ACH transfers are typically free of charge, though they may require a small fee for expedited transfers.
What Is a Wire Transfer?
A wire transfer is an electronic money transfer from one financial institution directly to another, without a third party. This method is often used to transfer money for a same-day arrival, but the expedited service comes at a premium. Fees run the gamut because banks can choose how much to charge, subject to any state restrictions.
There are two types of wire transfers: domestic and international. International transfers are also called remittance transfers, international wires or international money transfers, and must be for more than $15 when sent from the United States to another country.
There are two main scenarios in which consumers or business owners might want to use a wire transfer instead of an ACH transfer:
- International payments: If you're sending money to family or friends in another country, a wire transfer allows currency exchange if necessary.
- Time is of the essence: An ACH transfer generally takes a day or two before money is deposited in the receiving bank account. With a wire transfer, the money may show up in the recipient's bank account the same day, and sometimes even instantly, especially if it's a domestic wire transfer.
It's not uncommon for consumers to use wire transfers to make hefty one-time payments that require same-day processing for transactions related to real estate. But be mindful that same-day limits on fund transfers may apply.
| ACH vs. Wire Transfer | ||
|---|---|---|
| ACH Transfer | Wire Transfer | |
Transaction type | Bills, payroll, transferring money from one account to another | Often international payments, when time is of the essence |
| Destination | Domestic and international | Domestic and international |
| Speed | Typically one to three days | Possibly a few days if an international wire transfer; otherwise, within a day or instantly |
Cost | Usually free | Fees can vary, from amounts such as $20 to $75 |
| Limits | Up to $1 million per day, for businesses and consumers | Varies by bank, but limits may be $100,000 or more |
| Fraud | Could happen if you're a victim of identity theft and somebody has your personal information | Scammers often try to trick people into wiring them money |
| Reversal | You can often reverse an ACH transfer within the same day. | Often impossible with domestic wires, but you may have up to 30 minutes to cancel international wire transfers |
Key Differences Between ACH Transfers and Wire Transfers
Before you initiate an ACH or wire transfer, it's important to understand how they differ. Consider the following factors when deciding which option is best.
Availability
ACH transfers and wire transfers can be used for both domestic and international transactions.
Cost and Fees
If you run a business, you may have a small processing fee for handling an ACH transfer. Consumers generally pay either nothing or very little. It's another story with wire transfer fees. Those can range from amounts such as $20 to $75 or even higher: Federal law doesn't establish a maximum amount for fees. States, however, may impose restrictions on fees.
Transfer Speed
As noted, an ACH transfer typically takes a few days to process, whereas a wire transfer generally occurs on the same day and sometimes instantly. A wire transfer done internationally may take a few days.
Security and Fraud
Mistakes and fraud can occur with financial institutions that handle wire and ACH transfers. While ACH transfers can be stopped, wire transfers work much more quickly and are final once the funds are received: Canceling a wire transfer is usually a race against time.
Reversals
If you find that you need to cancel an ACH transfer, you can usually do it within the same day, although if it's over $25,000, it may take a little longer. Wire transfers sometimes can't be stopped; they're that fast. That's why it's best to only wire money if you are absolutely certain whoever is on the other end is trustworthy and reputable.
Transfer Limits
Daily transfer limits apply for ACH and wire transfers. Check with your bank or credit union to find out what their transfer limits for each are. Consumers can send or receive money with ACH transfers, whereas wire transfers are only initiated by the sender. Consumers and businesses are generally limited to $1 million on ACH transfers. Limits for wire transfers tend to be high, but they vary by bank.
ACH Transfer vs. Wire Transfer: Which Should You Choose?
If you're given the choice between sending or receiving money via ACH transfer or a wire transfer, what you should select depends on how quickly you need the money (or need to send it), and whether you or the sender minds paying a fee to transfer it faster. Wire transfers tend to get money into somebody's checking account significantly faster than an ACH transfer.
Because wire transfers often come with a fee, an ACH transfer may be more attractive if the situation isn't urgent.
The Bottom Line
If you're torn between an ACH or wire transfer, consider the processing time and fees. ACH transfers take a bit longer to process, but they are usually free or at least low-cost. They're also ideal if you're looking for a convenient way to pay bills from your bank electronically. But if you need the funds to arrive the same day or make a cross-border payment, a wire transfer is likely the best option.